Microeconomics for today 8th edition tucker test bank

Chapter 2—Production Possibilities, Opportunity Cost, and Economic Growth MULTIPLE CHOICE Which of the following is not one of the three fundamental economic questions? a What happens when you add to or subtract from a current situation? b For whom to produce? c How to produce? d What to produce? ANS: A PTS: DIF: Easy NAT: BUSPROG: Reflective Thinking STA: DISC: Productivity and growth TOP: Three Fundamental Economic Questions KEY: Bloom's: Knowledge Which of the following correctly lists the three fundamental economic questions? a If to produce? Why to produce? When to produce? b If to produce? What to produce? How to produce? c Why to produce? What to produce? How to produce? d What to produce? How to produce? For whom to produce? ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Three basic decisions must be made by all economies What are they? a How much will be produced, when it will be produced, and how much it will cost b What the price of each good will be, who will produce each good, and who will consume each good c What will be produced, how goods will be produced, and for whom goods will be produced d How the opportunity cost principle will be applied, if and how the law of comparative advantage will be utilized, and whether the production possibilities constraint will apply ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Because of the problem of scarcity, each economic system must make which of the following choices? a How to produce? c For whom to produce? b What to produce? d All of these ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Which fundamental economic question is most closely related to the issues of income distribution and poverty? a The What to Produce question c The How to Produce question b The Why to Produce question d The For Whom to Produce question ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Which fundamental economic question requires society to choose the technological and resource mix used to produce goods? a The What to Produce question c The How to Produce question b The Why to Produce question d The For Whom to Produce question ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Opportunity cost: a represents the best alternative sacrificed for a chosen alternative b has no relationship to the various alternatives that must be given up when a choice is made in the context of scarcity c represents the worst alternative sacrificed for a chosen alternative d Represents all possible alternatives sacrificed for a chosen alternative ANS: A PTS: NAT: BUSPROG: Reflective Thinking TOP: Opportunity Cost DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge The opportunity cost of an action is: a the monetary payment the action required b the total time spent by all parties in carrying out the action c the value of the best opportunity that must be sacrificed in order to take the action d the cost of all alternative actions that could have been taken, added together ANS: C PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost The highest valued alternative that must be given up in order to choose an option is called the: a opportunity cost c scarcity expense b utility cost d disutility option ANS: A PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Opportunity Cost 10 Which of the following sayings best reflects the concept of opportunity cost? a "You can't teach an old dog new tricks." b "There is no such thing as a free lunch." c "I have a baker's dozen." d "There's no business like show business." ANS: B PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 11 The opportunity cost to a city for using local tax revenues to construct a new park is the: a best alternative foregone by building the park b dollar cost of constructing the new park c dollar cost of the old park d increased taxes necessary to pay for maintenance of the new park ANS: A PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost NAT: BUSPROG: Analytic TOP: Opportunity Cost KEY: Bloom's: Comprehension 12 A good or service that is forgone by choosing one alternative over another is called a(n): a explicit cost c historical cost b opportunity cost d accounting cost ANS: B PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Opportunity Cost 13 Opportunity cost is the: a cost incurred when one fails to take advantage of an opportunity b price paid for goods and services c cost of the best option forgone as a result of choosing an alternative option d undesirable aspects of an option ANS: C PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 14 The opportunity cost of a purchase is: a the selling price of the good or service b zero if the good or service satisfies a need c greater for persons who are rich d the good or service given up for the good or service purchased ANS: D PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 15 The opportunity cost of watching television is: a all of the alternative programs that appear on other stations b zero because there is no money expenditure involved c the alternative use of the time foregone by watching the program d zero if it benefits you ANS: C PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 16 Which of the following does not illustrate opportunity cost? a If I study, I must give up going to the football game b If I buy a computer, I must without a 35" television c More consumer spending now means more spending in the future d If I spend more on clothes, I must spend less on food ANS: C PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension 17 Which of the following does not illustrate opportunity cost? a If I study, I must give up going to the football game b If I buy a computer, I must without a 35" television c If I spend more on clothes, I must spend less on food d All of these illustrate opportunity cost NAT: BUSPROG: Analytic TOP: Opportunity Cost ANS: D PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 18 The opportunity cost of an economic decision is: a the best alternative that was sacrificed b the amount of money needed to implement the decision c any land, labor, and capital that are wasted d all options that were lost due to scarcity ANS: A PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 19 Bill has $10 to spend on a Superman, Batman, or an X-Men T-shirt Bill buys the Superman T-shirt and the Batman shirt was a close second choice What is the opportunity cost? a The amount he spent, $10 b Nothing, since he got his preferred choice c The Batman T-shirt d The X-Men T-shirt ANS: C PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 20 On a production possibilities curve, the opportunity cost of good X, in terms of good Y, is represented by the: a distance to the curve from the vertical axis b distance to the curve from the horizontal axis c movement along the curve d all of these ANS: C PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 21 Which of the following statements is true? a An opportunity cost is what must be given up in order to get something else b The three fundamental economic questions refer to What to produce? How to produce? and When to produce? c The term "investment" refers to the purchase of stocks and bonds and other financial securities d The law of increasing opportunity cost implies that as production of one type of good is expanded then fewer and fewer of other goods must be given up ANS: A PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 22 The amount of a good that must be given up to produce another good is the concept of: a scarcity b specialization c trade d efficiency e opportunity cost ANS: E PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Opportunity Cost 23 The opportunity cost of an activity means the: a amount of money the activity costs b number of hours that is required to engage in this activity c expected gains by engaging in the activity d amount of other things that must be sacrificed in order to engage in the activity e expected gains minus the expected costs of engaging in the activity ANS: D PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 24 In the context of the production possibilities curve, opportunity cost is measured in: a dollars paid for the goods b the quantity of other goods given up c the value of the resources used d changing technology e units of satisfaction ANS: B PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 25 Mikki decides to work five hours the night before her economics exam She earns an extra $75, but her exam score is 10 points lower than it would have been had she stayed home and studied Her opportunity cost is the: a five hours she worked b $75 she earned c 10 points she lost on her exam d time she could have spent watching television e guilt she feels about neglecting her economics studies ANS: C PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 26 When the opportunity cost of producing carrots increases as more carrots are produced, then: a no more carrots will be produced b resources are equally suited to the production of carrots and to other goods c the production possibilities curve is a straight line d the production possibilities curve becomes positively sloped e the law of increasing costs is present ANS: E PTS: DIF: Challenging STA: DISC: Scarcity, tradeoffs, and opportunity cost TOP: The Law of Increasing Opportunity Costs 27 The opportunity cost of your college education is: a c and d b d and e c the actual dollar cost of your college education NAT: BUSPROG: Analytic KEY: Bloom's: Analysis d your best alternative use of the money you spend for a college education e money you could have earned working instead of going to college ANS: B PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost 28 The law of increasing costs indicates that the opportunity cost of producing a good: a is proportional to the production of the good b is constant to the production of the good c increases as more of the good is produced d decreases as more of the good is produced e increases as less of the good is produced ANS: C PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost TOP: The Law of Increasing Opportunity Costs NAT: BUSPROG: Analytic KEY: Bloom's: Comprehension 29 The amount of a good that is given up to produce another good is: a its dollar cost b its opportunity cost c its relative cost d its absolute cost e all of these ANS: B PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Opportunity Cost Exhibit 2-1 Production possibilities curve data Consumption Goods 10 Capital Goods 30 In Exhibit 2-1, according to the information, the opportunity cost of producing units of capital is: a units of consumption goods c units of consumption goods b units of consumption goods d units of consumption goods ANS: A PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis NAT: BUSPROG: Analytic TOP: Opportunity Cost 31 In Exhibit 2-1, the opportunity cost of producing the fourth unit of capital is: a b unit of consumption goods c units of consumption goods d units of consumption goods e there is not enough information to estimate the opportunity cost ANS: D PTS: DIF: Moderate NAT: BUSPROG: Analytic STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis TOP: Opportunity Cost Exhibit 2-2 Production possibilities curve 32 The production possibilities in Exhibit 2-2 indicates that the opportunity cost of corn is: a increasing b decreasing c zero d constant e indeterminate ANS: D PTS: DIF: Challenging STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis NAT: BUSPROG: Analytic TOP: Opportunity Cost 33 In Exhibit 2-2, the slope of the production possibilities curve indicates that the opportunity cost of: a coffee is constant b coffee is increasing c coffee is decreasing d corn is increasing e corn is decreasing, ANS: A PTS: DIF: Challenging STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis NAT: BUSPROG: Analytic TOP: Opportunity Cost 34 In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is: a million bushels of corn b million bushels of corn c million bushels of corn d 14 million bushels of corn e it is not possible to determine ANS: A PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis NAT: BUSPROG: Analytic TOP: Opportunity Cost 35 In Exhibit 2-2, the opportunity cost of coffee when moving from A to B is: a the same as moving from A to C b the same as moving from A to D c the same as moving from B to D d the same as moving from B to C e it is not possible to determine ANS: D PTS: DIF: Challenging STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis NAT: BUSPROG: Analytic TOP: Opportunity Cost 36 A farmer is deciding whether or not to add fertilizer to his or her crops If the farmer adds pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre According to marginal analysis, the farmer should add fertilizer if it costs less than: a $12.50 per pound c $80 per pound b $20 per pound d $100 per pound ANS: B PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Moderate NAT: BUSPROG: Analytic TOP: Marginal Analysis 37 Which word best completes the following sentence? A rational decision maker always chooses the option for which marginal benefit is marginal cost a less than b equal to c unrelated to d more than ANS: D PTS: NAT: BUSPROG: Reflective Thinking TOP: Marginal Analysis DIF: Easy STA: DISC: Marginal costs & benefits KEY: Bloom's: Knowledge 38 In economics, the term marginal refers to: a the change or difference from a current situation b man-made resources as opposed to natural resources c the satisfaction a consumer receives from a good d holding everything else constant in the analysis ANS: A PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Knowledge DIF: Easy NAT: BUSPROG: Analytic TOP: Marginal Analysis 39 When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the: a benefits expected from two cars with the cost of both b additional benefits expected from a second car with the cost of the two cars c dollar cost of the two cars with the potential income that the cars will generate d additional benefits of the second car with the additional cost of the second car ANS: D PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 40 While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Jordan notices that the restaurant has a value meal containing three tacos and a medium drink all for $3 For Jordan, the marginal cost of the third taco would be: a zero c 80 cents b 50 cents d $1 ANS: B PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 41 While waiting in line to buy a cheeseburger for $2 and a drink for 75 cents, Aaron notices that the restaurant has a value meal containing a cheeseburger, drink, and French fries for $3 For Aaron, the marginal cost of purchasing the French fries: a would be zero b would be 25 cents c would be 50 cents d cannot be determined because the information about the price of the French fries is not provided ANS: B PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 42 While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75 She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of: a marginal analysis b basing decisions on total, rather than marginal, value c an unintended consequence d the fallacy of composition ANS: A PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Moderate NAT: BUSPROG: Analytic TOP: Marginal Analysis 43 Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on the importance to his grade that he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing To an economist, Stuart is: a using marginal analysis b ignoring the total value of attending class c ignoring the concept of opportunity cost d irresponsible ANS: A PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 44 Susan wishes to buy gasoline and have her car washed She finds that if she buys gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free For Susan, the marginal cost of the tenth gallon of gasoline is: a zero c $1 b 50 cents d $1.50 ANS: B PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 45 Ralph wants to buy some milk and a box of cereal If Ralph buys quarts of milk at $1 per quart, the box of cereal costs 75 cents If he buys quarts of milk at $1 per quart, the box of cereal is free For Ralph, the marginal cost of the third quart of milk is: a zero c 75 cents b 25 cents d $1 ANS: B PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 46 A local restaurant offers an "all you can eat" Sunday brunch for $12 Susan eats four servings, but leaves half of a fifth helping uneaten Why? a Her marginal value of a serving of brunch has fallen below $12 b Her marginal value of a serving has fallen below $2.36 ($12 divided by servings) c Her marginal value of food has fallen to zero d The total value she places on brunch today exactly equals $12 ANS: C PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Application DIF: Challenging NAT: BUSPROG: Analytic TOP: Marginal Analysis 47 According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study: a is positive b outweighs the extra cost c exceeds the benefits of the previous hour of study d will raise your exam score ANS: B PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Marginal Analysis 48 The principle that the opportunity cost increases as the production of one output expands along the production possibilities curve is the: a law of increasing opportunity costs b law of supply c law of demand d law of diminishing returns ANS: A PTS: DIF: Easy NAT: BUSPROG: Reflective Thinking STA: DISC: Productivity and growth TOP: The Law of Increasing Opportunity Costs KEY: Bloom's: Knowledge 49 If an economy is operating at a point inside the production possibilities curve, a its resources are not being used efficiently b the curve will begin to shift inward c the curve will begin to shift outward d This is a trick question because an economy cannot produce at a point inside the curve ANS: A PTS: STA: DISC: Productivity and growth DIF: Moderate NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve STA: DISC: Productivity and growth KEY: Bloom's: Comprehension TOP: The Production Possibilities Curve Exhibit 2-16 Production possibilities curve 127 From the information in Exhibit 2-16, which of the following points on the production possibilities curve are attainable with the resources and technology currently available? a A, B, C, E, U b A, B, C, D, W c E, U, W d B, C, D, U e A, B, C, E ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 128 In Exhibit 2-16, which of the following points on the production possibilities curve are unattainable with the resources and technology currently available? a A, B, C, U b A, B, C, D, U c E and W d B, C, D, U e A, B, C, D ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 129 In Exhibit 2-16, which of the following points on the production possibilities curve are efficient production points? a A, B, C, U b A, B, C, D, U c E, U, W d B, C, D, U e A, B, C, D ANS: E PTS: DIF: Easy NAT: BUSPROG: Analytic STA: DISC: Productivity and growth KEY: Bloom's: Comprehension TOP: The Production Possibilities Curve 130 In Exhibit 2-16, to move from U to B, the opportunity cost: a would be units of consumption goods b would be units of capital goods c would be zero d would be units of capital goods e cannot be estimated ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 131 In Exhibit 2-16, which of the following points on the production possibilities curve are full-employment production points? a A, B, C, D b A, B, C, D, U c E, U, W d B, C, D, U e A, B, C, U ANS: A PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 132 Suppose that an economy can produce various combinations of fish and bread If more people with strong fishing skills became employed in this economy, how would the production possibilities curve (PPC) change? a The PPC would shift outward on the fish axis, but would not change on the bread axis b The PPC would shift outward equally along both the fish and the bread axes c The PPC would shift inward on the bread axis, but would not change on the fish axis d The PPC would shift inward equally along both the fish and the bread axes ANS: A PTS: STA: DISC: Measuring the Economy KEY: Bloom's: Application DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 133 Over time, an increase in a nation's stock of physical capital will: a shift the production possibilities curve inward b cause an economy to operate inside its production possibilities curve c shift the production possibilities curve outward d eliminate the basic economic problem of scarcity ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 134 The ability of an economy to produce greater levels of output in the same period of time is called: a positive economics b negative economics c economic growth d marginal productivity ANS: C PTS: DIF: Easy NAT: BUSPROG: Reflective Thinking TOP: Sources of Economic Growth STA: DISC: Productivity and growth KEY: Bloom's: Knowledge 135 Which of the following would not lead to a shift in an economy's production possibilities curve? a Change in technology b Change in the number of resources c An earthquake d Improvement in the education level e Change in the composition of current output ANS: E PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 136 Adding more resources causes: a downward movement along a production possibilities curve b the production possibilities curve to shift in c upward movement along a production possibilities curve d the production possibilities curve to shift out e the production possibilities curve to become positively sloped ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 137 If an economy keeps increasing its capital stock, then over time its production possibilities curve will: a not move b shift to the left c shift to the right d disappear because scarcity ceases to exist e demonstrate massive job loss for workers ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 138 Compare two economies A and B that start out with identical production possibilities curves Economy A chooses an efficient point with consumption goods and capital goods, while economy B also chooses an efficient point, but with consumption goods and capital goods In the future we can predict: a economy A will operate inefficiently b economy B will operate inefficiently c economy A and economy B will grow equally fast d economy A will grow faster than economy B e economy B will grow faster than economy A ANS: E PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 139 An analysis of production possibilities curves indicates that the reason why underdeveloped nations have difficulties increasing their economic growth rates is because: a low population growth rates mean fewer workers to produce food and other necessities b their production possibilities curves shift in when resources are increased c their production possibilities curves are positively sloped, unlike those in more developed economies d they must cut back their already meager consumption levels to increase capital production e the opportunity cost of shifting resources from consumption goods to capital goods is relatively low ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 140 People in poor countries may have difficulties achieving economic growth because: a their production possibilities curves slope upward instead of downward b they must cut back on current consumption to increase capital goods c they have a solid consumption base already in place d their resource bases are fully developed e the law of increasing costs makes it hard to produce more goods ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 141 Technological innovations will cause: a the production possibilities curve to stay the same b the production possibilities curve to shift to the left c the production possibilities curve to shift to the right d an economy to operate below its production possibilities curve e the production possibilities curve to increase or decrease ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 142 Which of the following causes the production possibilities curve to shift to the right? a d and e b c and e c A war d The development of a new technology that improves productivity e The discovery of oil reserves ANS: A PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 143 Robinson Crusoe's decision to produce more capital goods and fewer consumer goods in a given period causes: a a decrease in the resources available in its economy b an increase in economic growth in future periods c a decrease in economic growth in future periods d no change in the availability of resources in its economy e a decrease in the ability to produce goods in the next period ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 144 A major technological advance would be represented on a production possibilities curve by a(n): a b c d movement off the production possibilities curve toward a point outside the curve movement toward the curve from a point inside the curve outward shift of the entire curve movement to the left along the curve to a higher point ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 145 Other things being equal, a decreased supply of natural resources would be represented on a production possibilities curve by a(n): a movement off the curve to a point inside the curve b movement down along the curve c movement up along the curve d inward shift of the entire curve ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 146 Which would be least likely to cause the production possibilities curve to shift to the right? a An increase in the labor force b Improved methods of production c An increase in the education and training of the labor force d A decrease in unemployment ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 147 Which of the following would most likely cause the production possibilities curve for DVDs and food to shift outward? a A choice of more food and more DVDs b A choice of more food and less DVDs c A choice of more DVDs and less food d An increase in the quantity of natural resources ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 148 On a production possibilities curve diagram, greater entrepreneurship: a causes the curve to shift outward b keeps the economy on the curve c prevents movement along the curve d keeps the economy at the corners of the curve ANS: A PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 149 In order for an economy to shift its production possibilities curve rightward, it must: a suffer resource unemployment b experience an increase in its resources and/or an improvement in its technology c use its resources more efficiently than at points along the curve d all of these ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 150 Reductions in available resources will cause the production possibilities curve to: a expand c become vertical b disappear d shift inward ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 151 A rightward (an outward) shift of a nation's production possibilities curve could be caused by: a a decrease in technology b an increase in resources c producing more consumer and fewer capital goods d a decline in the labor force's level of education and skills ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 152 An outward shift of an economy's production possibilities curve is caused by: a an increase in capital c an advance in technology b an increase in labor d all of these ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 153 The production possibilities curve for the nation of Economania shifts to the right This could have been caused by: a a decrease in Economania's capital stock b a decrease in the Economania's labor supply c high unemployment in Economania the previous time period d Economania producing all consumer goods in the previous period e technological innovation in the production of Economania goods ANS: E PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 154 The production possibilities curve for the nation of Economagic shifts to the left This could have been caused by: a an increase in Economagic's labor supply b innovation in the production of goods in Economagic c a war that destroyed some of Economagic's resource base d unemployment among Economagic's workers e Economagic's choice of more consumption and less capital last period ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 155 Which of the following cause(s) economic growth? a c and d b d and e c The production of more scarce goods d A technological improvement e The production of more capital goods ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 156 Economic growth may be represented by a(n): a leftward shift of a production possibilities curve b outward shift of a production possibilities curve c movement along a production possibilities curve d production possibilities curve that remains fixed ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 157 A source of economic growth is: a unemployment b inefficiency ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension c less resources d greater entrepreneurship DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 158 One source of economic growth is: a producing inside the production possibilities curve b producing outside the production possibilities curve c increasing capital d discouraging profit-seeking entrepreneurs ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 159 Which of the following statements is false? a Marginal analysis is an examination of the effects of additions or subtractions from a current situation b The production possibilities curve shows the maximum combination of two outputs that an economy can produce, given its available resources and technology c Technology is the body of knowledge and skills applied to how goods are produced d Economic growth is illustrated as an inward shift of the production possibilities curve ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Sources of Economic Growth Exhibit 2-17 Production possibilities curve 160 In Exhibit 2-17, if countries A and B currently have the same production possibilities curve (PPC) as given in the figure, but this year country A locates at point A on its PPC and country B locates at point B on its PPC, then country A: a is better off than country B b will grow at a faster rate than country B c will grow at a slower rate than country B d is producing more capital goods than country B e is more efficient than country B ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth Exhibit 2-18 Production possibilities curves 161 In Exhibit 2-18, a country is located at point A on its Year X production possibilities curve In Year Y this same country is located at point B on its Year Y production possibilities curve Which of the following could have brought about this outward shift in production possibilities curves? a More efficient production in Year X b A natural disaster in Year X which leads to a destruction of resources c Higher unemployment in Year X d An advance in technology occurred in Year X ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 162 In Exhibit 2-18, the production possibilities curves for a country are shown for the years Year X and Year Y Suppose this country was located at point A in Year X and point B in Year Y This country: a is producing the same number of capital goods in both years b is producing the same number of consumption goods in both years c has shown no growth between Year X and Year Y d has higher unemployment in Year X than in Year Y e has higher unemployment in Year Y than in Year X ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 163 In Exhibit 2-18, the production possibilities curves for a country are shown for the years Year X and Year Y Suppose this country was located at point A in Year X and point B in Year Y This economy: a is worse off in Year Y than in Year X b has stagnated production in this two year period c is more efficient in Year Y than in Year X d has shown growth between these two years e has higher unemployment in Year Y than in Year X ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth Exhibit 2-19 Production possibilities curves 164 In Exhibit 2-19, the production possibilities curves for a country are shown for the years Year X and Year Y Suppose this country was located at point A in Year X and point B in Year Y This economy: a has lower unemployment in Year Y than in Year X b was more efficient in Year X than in Year Y c achieved full employment in Year X and in Year Y d showed no growth between Year X and Year Y e is worse off in Year Y than in Year X ANS: A PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 165 In Exhibit 2-19, the production possibilities curves for a country are shown for the years Year X and Year Y Which of the following could have caused a shift for Year X to Year Y in production possibilities curves? a An increase in unemployment b A decline in technology c An increase in the stock of capital goods d A natural disaster e More efficient production ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 166 With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy? a passage of legislation reducing the workweek to 30 hours b instituting a tax policy encouraging consumption at the expense of investment c instituting a tax policy encouraging investment at the expense of consumption d an increase in the marginal income tax rate, which would reduce the work effort of individuals ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 167 Which of the following is true? a The production possibilities curve indicates that it will be impossible to expand total output with the passage of time b As long as resources are scarce, output cannot be increased c The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less d Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things ANS: D PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 168 The process through which an economy's production possibilities curve shifts outward is: a full-employment management c resource renewal b investment d out-resourcing ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 169 The process of accumulating capital is called: a capitalization c investment b loanable funds d debt management ANS: C PTS: STA: DISC: Productivity and growth KEY: Bloom's: Knowledge DIF: Easy NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 170 In economics, investment refers to the process of accumulating: a capital goods b consumer goods ANS: A PTS: STA: DISC: Productivity and growth KEY: Bloom's: Knowledge c money d stocks and bonds DIF: Easy NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 171 A nation can accelerate its economic growth by: a reducing the number of immigrants allowed into the country b adding to its stock of capital c printing more money d imposing tariffs and quotas on imported goods ANS: B PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production TRUE/FALSE What to produce, how to produce, and for who to produce are the three fundamental economic questions ANS: T PTS: DIF: Easy NAT: BUSPROG: Reflective Thinking STA: DISC: Supply and demand TOP: Three Fundamental Economic Questions KEY: Bloom's: Knowledge Only socialist economies need to answer the What, How, and For Whom questions ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Opportunity cost is the best alternative sacrificed for a chosen alternative ANS: T PTS: NAT: BUSPROG: Reflective Thinking TOP: Opportunity Cost DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge When making a rational decision which requires the consideration of costs and benefits involved, the opportunity cost of a decision is often not taken into consideration when indeed it should be ANS: T PTS: DIF: Challenging STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Analysis NAT: BUSPROG: Analytic TOP: Opportunity Cost An opportunity cost is the highest valued alternative foregone whenever one chooses an alternative ANS: T PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Opportunity Cost The opportunity cost of producing a good or service is the good or service that is foregone by choosing to produce another good with the same resources in a given period of time ANS: T PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Knowledge NAT: BUSPROG: Analytic TOP: Opportunity Cost The opportunity cost of attending a movie is the purchase price of a ticket ANS: F PTS: DIF: Easy STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost Every economic choice has an opportunity cost ANS: T PTS: DIF: Moderate STA: DISC: Scarcity, tradeoffs, and opportunity cost KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Opportunity Cost The basic approach in marginal analysis is to compare a policy's total benefits with its total costs ANS: F PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Marginal Analysis 10 Marginal analysis examines the effects of additions to or subtractions from a current situation ANS: T PTS: STA: DISC: Marginal costs & benefits KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: Marginal Analysis 11 Unemployment or underemployment of labor might explain why an economy would be operating inside its production possibilities curve (PPC) ANS: T PTS: DIF: Moderate NAT: BUSPROG: Reflective Thinking STA: DISC: Measuring the Economy TOP: The Production Possibilities Curve KEY: Bloom's: Comprehension 12 If more of one good can be produced without producing less of another output, the economy must have been operating efficiently ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 13 If some resources went to waste rather to use in production, the economy would operate outside its production possibility curve ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Easy NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 14 Each and every point along a production possibilities curve represents an efficient output option for an economy ANS: T PTS: STA: DISC: Productivity and growth DIF: Easy NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve KEY: Bloom's: Comprehension 15 If some resources were used inefficiently, the economy would operate outside its production possibilities curve ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 16 Of all the points on the production possibilities curve, only one point represents an efficient point ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 17 The most efficient point on the production possibilities curve is the midpoint on the curve ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 18 On the production possibilities curve, a movement between points that yields a loss of one good in order to raise the output of another good will maintain efficient production ANS: T PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 19 All points on the production possibilities curve represent efficient levels of production ANS: T PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve 20 A nation's current location on its production possibilities curve can determine the future location of that nation's production possibilities curve ANS: T PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 21 Assuming an economy is already experiencing full employment, then it must produce more consumer goods and fewer capital goods if it wishes to experience greater rates of economic growth over time ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 22 A nation can accelerate economic growth by increasing its production of consumer goods ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Comprehension DIF: Moderate NAT: BUSPROG: Analytic TOP: Sources of Economic Growth 23 Investment in capital accumulation, as well as investment in education and other labor productivity enhancing programs, is necessary for economic growth ANS: T PTS: STA: DISC: Productivity and growth KEY: Bloom's: Analysis DIF: Challenging NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 24 In economics terminology, the process of accumulating money is investment ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Knowledge DIF: Moderate NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production 25 Investment is an economic term for the act of increasing the stock of money available for business loans ANS: F PTS: STA: DISC: Productivity and growth KEY: Bloom's: Knowledge DIF: Easy NAT: BUSPROG: Analytic TOP: Present Investment and the Future Production ESSAY Discuss the three fundamental economic questions that all nations must address ANS: The three fundamental economic questions are the "What," "How," and "For Whom" questions which must be addressed by all societies The "What" question pertains to what should the nation produce What combination of goods would be best? How should that combination of goods be produced is the "How" question We want to produce goods in the most efficient manner in order to maximize production The "For Whom" question addresses for whom should these goods be produced Who will get them? PTS: DIF: Challenging STA: DISC: Productivity and growth KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Three Fundamental Economic Questions Why are all costs really "opportunity costs"? ANS: An opportunity cost is what must be given up in order to get something else Although it is convenient to measure many costs in monetary terms, ultimately all costs (some of which cannot be easily measured in monetary terms) are opportunity costs because there is always something that must be given up in order to get something else PTS: DIF: Challenging NAT: BUSPROG: Analytic STA: DISC: Scarcity, tradeoffs, and opportunity cost TOP: Opportunity Cost KEY: Bloom's: Comprehension What can a nation to increase its economic growth? Why is economic growth among the major national economic goals of all countries? ANS: A nation must increase its production possibilities in order to experience economic growth Ingredients for economic growth include capital accumulation, investment in the labor force to increase productivity, investment in technology, and promoting the entrepreneurial spirit Economic growth is a major national economic goal of all nations because it increases the average absolute standard of living for the nation PTS: DIF: Challenging STA: DISC: Productivity and growth KEY: Bloom's: Comprehension NAT: BUSPROG: Analytic TOP: Sources of Economic Growth Graphically express a production possibilities curve What points on, inside and outside the curve represent? What does a rightward shift of the curve represent? How is economic growth expressed in terms of the production possibilities model? ANS: The production possibilities curve will bow out from the origin A point on the curve represents efficiency A point inside represents inefficiency A point outside the curve is currently unattainable (it is a combination of production we cannot currently produce given our limited resources and technology; although that point may be attainable if we acquire more resources, technology, or generally increase our production possibilities) A rightward shift in the curve represents an increase in production possibilities Because economic growth means an increase in a nation's production possibilities over time, then it is expressed as a rightward shift of the production possibilities curve PTS: DIF: Challenging STA: DISC: Productivity and growth KEY: Bloom's: Application NAT: BUSPROG: Analytic TOP: The Production Possibilities Curve